Special Needs Trusts – Estate Planning

The North Shore has a number of outstanding facilities to assist in the care and education of special needs minors. For example, the Northshore Education Consortium, with facilities in Beverly and Peabody, is one of the largest provider of special education programs for children with emotional, behavioral or developmental disabilities in Massachusetts. See https://www.nsedu.org/

For many parents, their top priority when planning for the future is to ensure that their children will be cared and provided for. The issues may be complicated when there is a child with disabilities as part of the family. Planning for children with disabilities presents unique challenges and considerations. The two main concerns presented by gifting or leaving funds directly to a disabled child are: first, a child with disabilities may be unable to appropriately manage funds themselves; and second, such a gift or inheritance may cause the child to lose important government benefits. A properly drafted Special Needs Trust, also known as a Supplemental Needs Trust, can address these issues and ensure that a disabled child is cared for and financially protected.

Perhaps the main benefit of a Special Needs Trust is that assets held by the trust for the disabled individual are not considered “countable assets” for the purposes of means-tested government benefits. Means-tested government benefits include Supplemental Security Income (SSI), Medicaid (also known as MassHealth in the Commonwealth), and certain housing assistance programs. For example, in order to receive SSI an individual must not have countable assets worth more than a total of $2,000.00.[1]

The government benefits provide for the disabled beneficiary’s basic support and maintenance. The purpose of a Special Needs Trust is to provide supplemental care for the disabled beneficiary that improves the beneficiary’s quality of life. Examples of appropriate uses of Special Needs Trust funds include vacations, vehicle maintenance, recreation and entertainment.

In order for a disabled beneficiary to maintain eligibility for government benefits, a Special Needs Trust must comply with strict requirements.

The Commonwealth sets forth the general criteria for a Special Needs Trust in 130 CMR 515.001:

The trust was created for a disabled individual under the age of 65 years old.

The trust was created for the sole benefit of the individual by the individual’s parent, grandparent, legal guardian, or a court.

The trust provides that the Commonwealth of Massachusetts will receive amounts remaining in the account upon the death of the individual up to the amount paid by the MassHealth agency for services to the individual.

When the member has lived in more than one state, the trust must provide that the funds remaining upon the death of the member are distributed to each state in which the member received Medicaid based on each state’s proportionate share of the total amount of Medicaid benefits paid by all states on the member’s behalf.[2]

The Special Needs Trust must also contain specific language to ensure that the funds are not treated as income to the disabled beneficiary. For example, the Special Needs Trust must specify that the trust is intended to provide for the supplemental needs of the beneficiary.

There may also be additional requirements depending on how the Special Needs Trust is funded. Often, a Special Needs Trust is funded by someone other than the disabled beneficiary, such as the beneficiary’s parents. When a person other than the disabled beneficiary funds the trust it is called a Third-Party Special Needs Trust. However, the disabled beneficiary may fund a Special Needs Trust herself when she unexpectedly receives funds. For example, the disabled beneficiary may receive an inheritance or settlement in a civil case. Such a trust is known as a “self-settled” or “first party” Special Needs Trust. A self-settled Special Needs Trust has numerous additional federal statutory requirements that must be met so that the disabled beneficiary maintains her SSI and Medicaid benefits.

Although not always possible, the better course of action is to have the funds paid directly to the Special Needs Trust rather than requiring a self-settled trust. As with most financial preparation, it pays to plan ahead. Working with an experienced trusts and estates attorney can ensure the future financial safety and well-being of a disabled child or loved one.